Forecast & Trends

Earlier this month, Ag Equipment Intelligence spoke with several raw material and component suppliers to farm equipment manufacturers about what they’re seeing in the market. A summary of the editors’ conversations follows.

Red-Hot Business

Several suppliers cited record sales months this spring, adding that it could have been considerably better had they had the material and inventory to ship more product.

Inventories are at record lows, and lead times are growing across the board. There was a shared sentiment that demand could be leveling off for the balance of the year, which they say is not a bad thing as hard as they’ve been pressing.

'Buying’ Capacity, Not Price

With other markets rebounding at the same time as ag equipment’s boom, production capacity is tight. Several conversations centered around how farm equipment manufacturers admit they didn’t forecast properly, and are now asking their suppliers what it’ll take to “buy the capacity” at suppliers’ plants. Negotiations, say suppliers, have less to do with price than with the need for guaranteed capacity. For the longer term, suppliers must weigh the decision of adding production capacity.

Describing the long tail involved with capital expansions, one executive said, “We all have learned that high demand can be over with before a new expansion can capitalize on it.”

Another supplier said his company was approached by a major ag equipment company with an offer to co-invest in production machinery to ensure the regular supply of its components. “This is the first time we’ve seen this,” he says, adding it could also be a sign of things to come.

Rising Prices from China

 Several manufacturers who source from China said the supply side situation there is dire. “You can’t rely on pricing anymore — prices have gone up more in the last 7 months than in the past 3.5 years.”

Weak Dollar Helping

Current exchange rates have been favorable to domestic suppliers (“it’s pummeling the offshore producers,” said one executive). 

Suppliers’ customers, the wholegoods manufacturers, are also finding it more advantageous to produce in the U.S. and export it. Another executive added that the exchange rate has brought renewed interest by European-based corporations to acquire wholegoods manufacturers in the U.S.

—   June 2011 Ag Equipment Intelligence